Stocks head for worst quarter since euro crisis, dollar soars

Tue Sep 30, 2014 7:17am EDT
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By Marc Jones

LONDON (Reuters) - A new trough in euro zone inflation pushed the euro to a two-year low on Tuesday, leaving the dollar on course for its biggest quarterly gain in six years and world stocks facing their largest drop since the peak of the euro crisis.

Falling food and energy prices saw euro zone inflation slow to 0.3 percent this month, piling the pressure on the European Central Bank to make clear when it meets Thursday that it is ready to take more preventative action.

World markets had already been in a hesitant mood as investors wondered what China's response would be to civil unrest in Hong Kong, and as the dollar's strength dominated the end of what has been a choppy third quarter.

On a broader scale, MSCI's 45-country All World stock index, was on course for a drop of almost 3 percent on the month and its biggest quarterly fall since Q2 2012, when the euro zone's debt crisis was at its most intense.

"We should not be more concerned than necessary on this," said Didier Duret, chief investment officer at ABN Amro.

"This data is still backward looking. What is important is that the euro is going down substantially, the ECB is very active and the U.S. economy is holding up well."

The new low in euro zone inflation kicked the euro below $1.26 for the first time since September 2012 and although the region's stocks got a minor lift from ECB easing bets the impact was limited.

The greenback had already been at a four-year peak against a basket of major currencies and its gains of 3.5 percent so far this month were the largest since February 2013 and in six years on a quarterly basis.   Continued...

A man walks through the lobby of the London Stock Exchange August 5, 2011. REUTERS/Suzanne Plunkett